ACC-405 Chapter 9 Handout

9.1 Danielle issued 1,000, 20-year bonds payable, each in the amount of $1,000 par value on
January 1, 2012. The bonds had a stated interest rate of 8% with interest paid annually on
December 31 of each year. Danielle received $980,000 for the bonds on January 1, 2012.
Danielle uses the straight-line method to amortize the discount.

Danielle purchases 80% of Lindsay for $300,000 at the beginning of 2016 when Lindsay’s book
value is Common Stock $275,000 and Retained Earnings $100,000. On December 31, 2016,
Lindsay purchased 30% of the bonds as an investment for $280,500. Lindsay elects to use the
straight-line method to amortize the discount. Lindsay had reported net income of $150,000 and
paid dividends of $30,000 in 2016. Lindsay reported net income of $130,000 and paid dividends
of $40,000 in 2017. Assume the use of the complete equity method.

The following information refers to Danielle’s Co. bonds:

8% Bonds Payable, issued 1/1/12 $1,000,000

Less: Unamortized Bond Discount 15,000
Carrying Value at 12/31/16 985,000

Required:
A. Record the entries on Lindsay’s books for the bond purchase.
B. Prepare the consolidation entry for the purchase of P’s bonds for 2016.
C. Allocation of Gain and Loss between Parent and Sub.
D. Entries on Parent’s books for 2016 and Calculation of Controlling and Noncontrolling
Interest.
E. Consolidation entries for 2016.

A. Lindsay’s Books

Investment in D Bonds 280,500

Cash 280,500

Danielles’ Books

No entry but Danielle has to make it look like the bonds are retired.
What if Danielle retired bonds instead – what would Danielle’s entry be?????

Bonds Payable 300,000

Discount on BP 4,500
Cash 280,500
Gain on Retirement 15,000

B. Consolidation Entry for 2016 for Purchase of Parent’s Bonds by Sub

g:cbasec/dunne/classnotes/acc405chap6handoutsp07
Bonds Payable 300,000
Discount on BP 4,500
Investment in D Bonds 280,500
Gain on Retirement 15,000

C. Allocation of Gain/Loss to Parent and Sub.

Price Paid 280,500

Carrying value 30%*985,000 295,500

Gain 15,000

Issuing Co Purchasing Co

Book Value Par Value Purchase Price

295,500 300,000 280,500

Loss 4,500 Gain 19,500

Parent Sub

D. Parents Books Entries for 2016 and balances for controlling and noncontrolling interest.

Investment in L Co 300,000
Cash 300,000

Cash 24,000
Investment in L Co 24,000

Investment is L Co 120,000
Equity in Lindsay’s Income 120,000
(150,000 * 80% subs income)

Equity in Lindsay’s Income 4500

(Parent’s Loss 100%)
Investment in L Co 4500

Investment in L Co 15,600
(19,500 Sub’s gain* 80%)
Equity in Lindsay’s Income 15,600

g:cbasec/dunne/classnotes/acc405chap6handoutsp07
Equity in Lindsay’s Income NCINI Investment NCI

120,000 30,000 300,000 75,000

(4500) (19,500*20%) 3,900 120,000 30,000
15,600 33,900 15,600 3,900
131,100 (4,500) (6,000) (dividends 20%)
(24,000) 102,900
407,100

E. Consolidation Entries for 2016 on Workpaper

Equity in Lindsay’s Income 131,100

Dividends 24,000
Investment in Lindsay 107,100

Beg Retained Earnings 100,000

Common Stock 275,000
Diff 0
Investment in L 300,000
NCI 75,000

Investment in D Bonds 19,500

Gain on Constructive Ret. 15,000
Discount on BP 4500

Bonds Payable 300,000

Investment in D Bonds 300,000

9.2 Assume that Lindsay holds the investment in Danielle’s bonds for all of 2017.

Required:
A. Record the entries on Danielle and Lindsay’s books for the appropriate interest
amounts.
B. Prepare the entries on Danielle’s book for 2017.

g:cbasec/dunne/classnotes/acc405chap6handoutsp07
A. Danielle’s entry for interest expense

Bond Interest Expense 81,000

Cash 8% * 1,000, 80,000
Discount Amortization (20/20) 1,000

30% of 81,000 is eliminated = 24,300

Lindsay’s entries for 2017

Cash 300,000*8% 24,000

Investment in Danielle’s bonds (19,500/15) 1,300
Bond interest revenue 25,300
Eliminate 25,300 in bond interest revenue

C. Entries on Danielle’s books

Cash 32,000
Investment in L Co 32,000

Investment is L Co 104,000
Equity in Lindsay’s Income 104,000
(80% of 130,000)

Investment in L Co 300
(4500/15)
Equity in Lindsay’s Income 300

Equity in Lindsay’s Income 1040

(15,600/15)
Investment in L Co 1040

Equity in Lindsay’s Income NCINI Investment NCI

104,000 26,000 407,100 102,900

300 (3900/15) (260) 104,000 26,000
(1040) 25,740 300 (260)
103,260 (32,000) (8,000)
(1,040) 120,640
478,360

g:cbasec/dunne/classnotes/acc405chap6handoutsp07